Question 1

Suppose that a firm's legal staff concludes that a new production process that the firm is developing is patentable.Graphically,this new information would shift the firm's expected-rate-of-return curve on R&D to the:

Accepted Answer

A)   right and reduce its optimal amount of R&D.
B)   right and increase its optimal amount of R&D.
C)   left and increase its optimal amount of R&D.
D)   left and reduce its optimal amount of R&D.E) B) and C)
F) A) and C)

Question 2

Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a new product and thus create a one-time added profit of $22 million a year later.The firm will:

Accepted Answer

A)   not undertake the R&D expenditure if its interest-rate cost of borrowing is 8 percent.
B)   undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.
C)   undertake the R&D expenditure if its interest-rate cost of borrowing is 20 percent.
D)   undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.E) A) and D)
F) All of the above

Question 3

Creative destruction is not automatic because:

Accepted Answer

A)   there are major obstacles to the entry of new innovative firms into concentrated industries.
B)   consumer tastes are highly unstable.
C)   corporate takeovers increase dynamic competition.
D)   large firms rarely are technologically progressive.E) A) and B)
F) A) and C)

Question 4

Which of the following supports the contention that pure competitors have a weak incentive to engage in R&D?

Accepted Answer

A)   Entry to purely competitive industries is easy and thus profit from innovation is quickly competed away.
B)   In pure competition,products are already highly differentiated.
C)   Most purely competitive industries are increasing-cost industries.
D)   Pure competitors are happy to earn only a normal profit.E) A) and B)
F) A) and C)

Question 5

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic.Which of the following would increase a firm's optimal R&D expenditures and,in equilibrium,leave the expected rate of return on the last dollar of R&D unchanged?

Accepted Answer

A)   A rightward shift of the expected-rate-of-return curve.
B)   An upward shift of the interest-rate cost-of-funds curve.
C)   A leftward shift of the expected-rate-of-return curve.
D)   A downward shift of the interest-rate cost-of-funds curve.E) All of the above
F) A) and D)

Question 6

As it relates to R&D,a firm's expected-rate-of-return-curve,r:

Accepted Answer

A)   slopes downward because the firm arrays,highest to lowest,the rates of return on R&D activities.
B)   slopes upward because of the law of diminishing returns.
C)   is a horizontal line.
D)   depends on whether it borrows from the bank or used retained earnings in financing R&D.E) B) and C)
F) B) and D)

Question 7

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Accepted Answer

A) True 
 B)False

Question 8

A firm's optimal amount of R&D occurs where the interest-rate cost of funds and the expected rate of return are equal.

Accepted Answer

A) True 
 B)False

Question 9

All of the following increase the expected rate of return on R&D expenditures except:

Accepted Answer

A)   patents.
B)   trademarks.
C)   imitation by others.
D)   trade secrets.E) A) and D)
F) A) and C)

Question 10

As it relates to the R&D decision,the interest-rate cost-of-funds curve:

Accepted Answer

A)   usually slopes downward.
B)   is the marginal cost element in the MB = MC decision framework.
C)   indicates a constant rate of return,r.
D)   reflects the interest rate on bank loans but not the implicit interest rate on the use of retained earnings.E) B) and D)
F) B) and C)

Question 11

The interest-rate cost-of-funds curve is perfectly elastic because firms can borrow as much or as little as they want at market interest rates.

Accepted Answer

A) True 
 B)False

Question 12

Firm ABC designs and implements a lower-cost method of producing its product.This is an example of:

Accepted Answer

A)   product innovation.
B)   the inverted U-theory.
C)   economies of scale.
D)   process innovation.E) A) and B)
F) A) and C)

Question 13

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ____________,while ZYX is known as a ____________.

Accepted Answer

A)   venture capital;start-up
B)   retained earnings;entrepreneurial firm
C)   mutual funds;start-up
D)   transfer payments;entrepreneurial firmE) A) and B)
F) A) and C)

Question 14

The first discovery (as distinct from first commercial application) of a product or process is called:

Accepted Answer

A)   innovation.
B)   invention.
C)   creative destruction.
D)   diffusion.E) A) and C)
F) A) and D)

Question 15

Entrepreneurs:

Accepted Answer

A)   work exclusively in government and university R&D laboratories.
B)   often form small companies called start-ups.
C)   are less likely to exist in service industries than in manufacturing industries.
D)   are engaged mainly in basic scientific research.E) C) and D)
F) B) and C)

Question 16

The first discovery of the water-soluble material used in contact lenses is an example of:

Accepted Answer

A)   innovation.
B)   invention.
C)   creative destruction.
D)   diffusion.E) C) and D)
F) A) and B)

Question 17

Consumer's income = $12   Units of  Product  Marginal Utility, X ( Price =$1)  Marginal Utility, Y ( Price =$1)  Marginal Utility,  New Product, Z ( Price =$1)  First 121620 Second 101418 Third 81216 Fourth 61014 Fifth 4812 Sixth 2610 Seventh 048\begin{array}{l}\begin{array} { c c c c } \begin{array} { c } \\text { Units of } \\text { Product }\\hline\end{array} & \begin{array} { c } \\text { Marginal Utility, X } \( \text { Price } = \$ 1 ) \\hline\end{array} & \begin{array} { c } \\text { Marginal Utility, Y } \( \text { Price } = \$ 1 ) \\hline\end{array} & \begin{array} { c } \text { Marginal Utility, }\\text { New Product, Z } \( \text { Price } = \$ 1 ) \\hline\end{array} \ \text { First } & 12 & 16 & 20 \\text { Second } & 10 & 14 & 18 \\text { Third } & 8 & 12 & 16 \\text { Fourth } & 6 & 10 & 14 \\text { Fifth } & 4 & 8 & 12 \\text { Sixth } & 2 & 6 & 10 \\text { Seventh } & 0 & 4 & 8\end{array}\end{array} Units of  Product ​​ First  Second  Third  Fourth  Fifth  Sixth  Seventh ​ Marginal Utility, X ( Price =$1) ​​121086420​ Marginal Utility, Y ( Price =$1) ​​16141210864​ Marginal Utility,  New Product, Z ( Price =$1) ​​2018161412108​​  Refer to the data.Suppose the price of new product Z is $10 rather than $1.This consumer would purchase:

Accepted Answer

A)   some of Z but not as much as if the price were $1.
B)   none of Z.
C)   less of X,Y,and Z than if the price were $1.
D)   more of X,Y,and Z than if the price were $1. E) C) and D)
F) A) and B)

Question 18

New scientific knowledge mainly comes from university and government laboratories,not private firms,because:

Accepted Answer

A)   large corporations do not have funds available to channel toward basic research.
B)   government pays scientists higher salaries than do private firms.
C)   entrepreneurs find it difficult to secure venture capital to finance innovation.
D)   basic scientific principles,as such,cannot be patented and do not always have commercial applicability.E) C) and D)
F) B) and D)

Question 19

As it relates to R&D,the imitation problem is that:

Accepted Answer

A)   patents,copyrights,and trademarks hinder imitation and thus limit economically desirable diffusion.
B)   brand names create entry barriers for would-be competitors.
C)   diffusion of innovation occurs more slowly than is desirable from society's perspective.
D)   a firm's rivals may be able to copy its new product or process innovation,reducing the original firm's return on R&D.E) None of the above
F) A) and B)

Question 20

The retained earnings that corporations often use to finance R&D are also known as:

Accepted Answer

A)   venture capital.
B)   undistributed profits.
C)   dividends.
D)   mutual funds.E) A) and D)
F) B) and C)

Exam 14: Technology RD and Efficiency

Correct Answer
verified

The first discovery (as distinct from first commercial application) of a product or process is called:

Correct Answer
verified

Entrepreneurs:

Correct Answer
verified

All of the following increase the expected rate of return on R&D expenditures except:

Correct Answer
verified

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Correct Answer
verified

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic.Which of the following would increase a firm's optimal R&D expenditures and,in equilibrium,leave the expected rate of return on the last dollar of R&D unchanged?

Correct Answer
verified

A firm's optimal amount of R&D occurs where the interest-rate cost of funds and the expected rate of return are equal.

Correct Answer
verified

The first discovery of the water-soluble material used in contact lenses is an example of:

Correct Answer
verified

New scientific knowledge mainly comes from university and government laboratories,not private firms,because:

Correct Answer
verified

The retained earnings that corporations often use to finance R&D are also known as:

Correct Answer
verified

Which of the following supports the contention that pure competitors have a weak incentive to engage in R&D?

Correct Answer
verified

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ,while ZYX is known as a .

Correct Answer
verified

As it relates to R&D,the imitation problem is that:

Correct Answer
verified

As it relates to the R&D decision,the interest-rate cost-of-funds curve:

Correct Answer
verified

The interest-rate cost-of-funds curve is perfectly elastic because firms can borrow as much or as little as they want at market interest rates.

Correct Answer
verified

As it relates to R&D,a firm's expected-rate-of-return-curve,r:

Correct Answer
verified

Suppose that a firm's legal staff concludes that a new production process that the firm is developing is patentable.Graphically,this new information would shift the firm's expected-rate-of-return curve on R&D to the:

Correct Answer
verified

Firm ABC designs and implements a lower-cost method of producing its product.This is an example of:

Correct Answer
verified

Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a new product and thus create a one-time added profit of $22 million a year later.The firm will:

Correct Answer
verified

Creative destruction is not automatic because:

Correct Answer
verified

Exam 14: Technology RD and Efficiency

Correct AnswerverifiedShow Answer

The first discovery (as distinct from first commercial application) of a product or process is called:

Correct AnswerverifiedShow Answer

Entrepreneurs:

Correct AnswerverifiedShow Answer

All of the following increase the expected rate of return on R&D expenditures except:

Correct AnswerverifiedShow Answer

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Correct AnswerverifiedShow Answer

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic.Which of the following would increase a firm's optimal R&D expenditures and,in equilibrium,leave the expected rate of return on the last dollar of R&D unchanged?

Correct AnswerverifiedShow Answer

A firm's optimal amount of R&D occurs where the interest-rate cost of funds and the expected rate of return are equal.

Correct AnswerverifiedShow Answer

The first discovery of the water-soluble material used in contact lenses is an example of:

Correct AnswerverifiedShow Answer

New scientific knowledge mainly comes from university and government laboratories,not private firms,because:

Correct AnswerverifiedShow Answer

The retained earnings that corporations often use to finance R&D are also known as:

Correct AnswerverifiedShow Answer

Which of the following supports the contention that pure competitors have a weak incentive to engage in R&D?

Correct AnswerverifiedShow Answer

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ____________,while ZYX is known as a ____________.

Correct AnswerverifiedShow Answer

As it relates to R&D,the imitation problem is that:

Correct AnswerverifiedShow Answer

As it relates to the R&D decision,the interest-rate cost-of-funds curve:

Correct AnswerverifiedShow Answer

The interest-rate cost-of-funds curve is perfectly elastic because firms can borrow as much or as little as they want at market interest rates.

Correct AnswerverifiedShow Answer

As it relates to R&D,a firm's expected-rate-of-return-curve,r:

Correct AnswerverifiedShow Answer

Suppose that a firm's legal staff concludes that a new production process that the firm is developing is patentable.Graphically,this new information would shift the firm's expected-rate-of-return curve on R&D to the:

Correct AnswerverifiedShow Answer

Firm ABC designs and implements a lower-cost method of producing its product.This is an example of:

Correct AnswerverifiedShow Answer

Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a new product and thus create a one-time added profit of $22 million a year later.The firm will:

Correct AnswerverifiedShow Answer

Creative destruction is not automatic because:

Correct AnswerverifiedShow Answer

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Correct Answer
verified

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ,while ZYX is known as a .

Correct Answer
verified

Correct Answer
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Correct Answer
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